Apple guilty in e-book conspiracy case, vows appeal (Update)

Jul 10, 2013 by John Biers

A fair goer tries out an eBook reader app on an Apple iPad at the Leipzig Book Fair on March 15, 2012. A judge Wednesday found Apple guilty of a price-fixing conspiracy for electronic books, saying the company "conspired to restrain trade" with publishers to boost the price of ebooks.

A US judge ruled Wednesday that Apple violated antitrust law in a price-fixing case, saying the company "conspired to restrain trade" with publishers to boost the price of e-books.

Apple quickly rejected the decision and said it would appeal

In a sweeping ruling, US District Judge Denise Cote, who presided over a bench trial in New York in June, concluded that Apple was liable for "facilitating and encouraging" a collective effort by the publishers to end price competition for e-books.

She ordered a new hearing to determine damages.

Cote rejected arguments from Apple, which claimed its entry into the e-book market promoted competition. The judge also determined that comments from late chief executive Steve Jobs helped prove the government's allegations of a conspiracy.

Analysts said the case was unlikely to have a material impact on Apple, which had nearly $145 billion in cash when it last reported earnings. While the case could result in a "significant judgment," Apple "should be able to weather this," said Rob Enderle, a California technology analyst.

The Justice Department has said it will seek injunctive relief and a court-ordered independent monitoring trustee. A group of 33 states will seek unspecified damages against Apple. A class-action suit against Apple could also be bolstered by Cote's ruling.

Cote had said before the trial that the government had a strong case, but Apple attorney were buoyed by some of her comments at trial. During closing arguments, Cote pointedly questioned both sides.

The trial focused on a six-week period in late 2009 and early 2010 during which Apple negotiated contracts with publishers ahead of its iPad launch and proposed a new and more profitable business model.

Publishers at the time were unhappy with Amazon's practice of charging $9.99 for bestsellers but were unable to effect change until Apple helped organize the group, Cote said.

"Understanding that no one publisher could risk acting alone in an attempt to take pricing power away from Amazon, Apple created a mechanism and environment that enabled them to act together in a matter of weeks to eliminate all retail price competition for their e-books," Cote said in her opinion.

"The evidence is overwhelming that Apple knew of the unlawful aims of the conspiracy and joined that conspiracy with the specific intent to help it succeed."

Each of the five publishers originally named in the US government's civil lawsuit settled the case, leaving Apple to stand trial alone.

The Justice Department hailed the ruling, which it said would help undo agreements that had harmed millions of consumers.

"Companies cannot ignore the antitrust laws when they believe it is in their economic self-interest to do so," said Assistant Attorney General Bill Baer.

Apple said it would pursue its appeal, saying in a statement that its actions "gave customers more choice, injecting much needed innovation and competition into the market, breaking Amazon's monopolistic grip on the publishing industry."

"Apple did not conspire to fix e-book pricing and we will continue to fight against these false accusations," said an Apple spokesman.

Amazon held "wholesale" contracts with publishers in which it set prices. Apple's contracts shifted to an "agency" model where publishers set the price and paid a 30 percent commission to Apple.

As Apple was finalizing the new model with publishers, several publishers successfully pressured Amazon to accept the agency model and higher prices, threatening to withhold books from Amazon unless it made the shift.

Cote sided with the government on charges that Apple helped orchestrate the industry's shift.

Cote also dismissed Apple's arguments that it was indifferent to price, concluding that "Apple convinced the Publisher Defendants that Apple shared their goal of raising e-book prices, and helped them to realize that goal."

Cote also rejected Apple's contention that it's entry into the e-book market was pro-competitive because of Amazon's dominance.

Apple's agreements with the publishers "did not promote competition, but destroyed it," she said.

Cote also cited a number of statements from Jobs that the government touted as proof of the conspiracy. These included a Jobs remark to his biographer boasting that the publishers "went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books.'"

Apple defense attorneys said Jobs' comments had been misinterpreted.

But Cote concluded that "Apple could find no effective way at trial to escape the import of Jobs' remarks."

Keith Hylton, a professor at Boston University School of Law, said Apple's chances of winning the appeal were "slim" given that Cote's 160-page opinion relied extensively on factual evidence.

"An appellate court is unlikely to have room to modify the decision substantially," Hylton said.

But Daniel Crane, a professor at the University of Michigan Law School specializing in antitrust law, said Apple has some "fairly strong" grounds to appeal whether Cote misinterpreted events and misapplied antitrust law to a fast-changing technology issue.

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The NY Times reported this week that Amazon has been raising book prices for selected titles to levels sometimes nearly 50% above the publisher's recommended selling price - no explanation forthcoming from Amazon.

Barnes & Noble is struggling. What happens if Apple just says "screw it" and bails from the market?

The agency model Apple proposed made sense for it. It didn't want to be in the position of trying to compete by adjusting book prices - that's what it left the publisher's to do since Apple just was taking a percentage - just like it does with music and other things it sells.

I think this is a short sighted decision by the Justice department to prosecute and the judge in making the decision.

The NY Times reported this week that Amazon has been raising book prices for selected titles to levels sometimes nearly 50% above the publisher's recommended selling price - no explanation forthcoming from Amazon.

Barnes & Noble is struggling. What happens if Apple just says "screw it" and bails from the market?

The agency model Apple proposed made sense for it. It didn't want to be in the position of trying to compete by adjusting book prices - that's what it left the publisher's to do since Apple just was taking a percentage - just like it does with music and other things it sells.

I think this is a short sighted decision by the Justice department to prosecute and the judge in making the decision.

Apple products owned by me - not one, never, ever.

If anyone needs to be looked at by the courts its Amazon. How do they get away with selling items at a loss with the market share they had.